Hawkins, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended April 2, 2023 (52 weeks), compared with fiscal 2022 ended April 3, 2022 (53 weeks). The extra week contributed an estimated $17.5 million of fiscal 2022 sales, affecting comparability. Hawkins formulates, manufactures, blends and distributes specialty chemicals and ingredients through Industrial, Water Treatment, and Health and Nutrition segments.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Sales | $935.1 million | $774.5 million |
| Gross profit / margin | $165.1 million / 17.7% | $146.5 million / 18.9% |
| Operating income / margin | $88.2 million / 9.4% | $71.2 million / 9.2% |
| Net income | $60.0 million | $51.5 million |
| Diluted EPS | $2.86 | $2.44 |
| Operating cash flow | $77.4 million | $42.8 million |
| Capital expenditures | $48.3 million | $28.5 million |
| Cash at year-end | $7.6 million | $3.5 million |
| Revolver borrowings | $112.0 million | $126.0 million |
Sales rose 21%, primarily because of higher selling prices. Industrial sales increased 22% to $470.8 million; volume fell approximately 11%, while average selling prices rose 36%. Water Treatment sales increased 34% to $304.9 million, including a 4% volume increase supported by acquisitions and 28% higher average prices. Health and Nutrition sales were essentially flat at $159.4 million.
Gross profit increased 13%, but gross margin declined as cost of sales grew faster than revenue. The rising-cost LIFO reserve reduced gross profit by $18.5 million in FY2023, versus $15.8 million in FY2022. Operating income improved despite that pressure. Net interest expense rose to $5.2 million from $1.4 million, reflecting higher rates and average borrowings. The effective tax rate was 27.3%, up from 26.3%.
Operating cash flow improved as working-capital cash use moderated to approximately $13 million, compared with approximately $37 million in FY2022. Investing activities used $41.2 million; financing activities used $32.1 million, including $14.0 million in net debt repayments, $12.0 million in dividends and $6.6 million in share repurchases. Year-end debt was $112.0 million under a $250 million secured revolving facility due April 2027; the balance-sheet carrying amount, net of issuance costs, was $111.6 million. The company reported compliance with its financial covenants.
Material changes and unusual items
- Higher prices drove much of the sales growth, while Industrial segment volume declined and total gross margin narrowed.
- Health and Nutrition gross profit fell 8% to $29.8 million, attributed to product mix.
- Water Treatment benefited from three businesses acquired in FY2022; their combined preceding-year revenue was approximately $17 million.
- On March 30, 2023, Hawkins sold consumer bleach packaging assets for $7 million and recorded a $3 million gain as a reduction to SG&A.
- Capital expenditures rose to $48.3 million, primarily for trucks and facility improvements and expansions.
Outlook, risks and contingencies
Management expects FY2024 capital expenditures of $40 million to $45 million and said it expects to remain in compliance with credit covenants for the next 12 months. The filing does not provide revenue or earnings guidance. Hawkins intends to use available excess cash flow to pay down debt and may pursue further acquisitions or strategic relationships.
Key exposures include volatile chemical input prices and supply availability, the lag between input costs and customer price adjustments, transportation and supply-chain disruption, seasonal and weather-sensitive demand, competition and price pressure, and operational hazards involving chemical handling and transportation. Environmental, health and safety, transportation, and food, pharmaceutical and supplement regulation may entail significant costs or liabilities. The company does not hedge commodity chemical purchases; a $60 million interest-rate swap covers a portion of variable-rate debt. Hawkins also cites cybersecurity, product liability, insurance, key-personnel, and facility-land-lease renewal risks. The filing reports no material pending litigation beyond ordinary routine matters.
Investor verification priorities
- Assess how much of sales growth reflects price inflation versus sustainable demand and volume, particularly the Industrial volume decline.
- Track whether selling prices keep pace with chemical, freight and other input costs, and monitor LIFO reserve effects on reported margins.
- Review cash conversion, seasonal working-capital needs, planned capital spending and the pace of debt repayment.
- Verify covenant headroom, variable-rate debt exposure and refinancing needs ahead of the April 2027 facility maturity.
- Monitor Health and Nutrition product mix, acquired Water Treatment performance, and risks tied to supply chains, regulation and facility leases.
The auditor issued unqualified opinions on the financial statements and internal controls; it reported no critical audit matters.